31 October 2004

Inside Kazakhstan I: Indians take big strides in Kazakh steel town

TIMERTAU: The irony is unavoidable and virtually everyone you meet — Kazakh, Russian or Indian — in this gritty, crumbling town in the heart of Kazakhstan's Karaganda region will mention it at least once with a smile: Here, in a place that was once a key blast furnace of the U.S.S.R. which first helped India make steel in the 1950s, an Indian company staffed by a small band of desi expats has helped convert this former Soviet republic's ageing steel plant from a rust heap on the verge of closure to a dynamic enterprise with a bright future.

Set up in 1958, Karmet — short for Karaganda Mettalurgical works — churned out 6 million tonnes of liquid steel in its heyday. But when the U.S.S.R. collapsed, the factory slowly went down the tubes. Production fell to 2.5 million tonnes. With no assured markets, products piled up. Workers stopped receiving salaries, the ageing plant began to fall apart, and the town, which grew up around the massive plant, ground to a halt. Civic services, including heating, packed up — this in a region where temperatures plunge to minus 40 degrees Fahrenheit in the winter.

In November 1995, Karmet was acquired by NRI and British resident Lakshmi Niwas Mittal for $400 million and renamed Ispat Karmet (Earlier this week, the parent concern, LNM, was rechristened the Mittal Steel Co.) A further $600 million was invested, and another $600m is now being pumped in.

Modern management

Today, Ispat-Karmet is thriving and Karaganda's leaders are thrilled by the turnaround. "The company runs our tramway on which Karmet workers travel free, is revamping the town's central heating system, and helps finance the local hospital, university, stadium and cultural centre," says Oral Bitybaev, deputy mayor in the Akimat, or town council, of Timertau. "The plant had specialists and technology but was weak in management," he says. "The Indians have brought us the best of modern management."

Ispat Karmet produces 5.2 million tonnes, a little less than the Soviet peak because the open-hearth plant was shut down for environmental reasons, say company officials. "But we will hit 6 again, and then 7 million," says S. Balasubramanian, director of modernisation. A tall man with extensive PSU experience in India, `Balu' wears vibhuti on his forehead and speaks fluent Russian.

No job losses

"With 52,000 employees, we are Kazakhstan's biggest employer", says N.K. Choudhary, General Director and CEO of Ispat Karmet. He stresses that the increases in production and efficiency have been achieved without any of the job losses normally associated with privatisation. "Kazakh president Nursultan Nazarbaev, who was once a steelworker in Karmet, made us promise there would be no job losses," he says. "There is a guarantee of social welfare from cradle to grave. We don't want to disturb this."

In the plant's main control room, besides the clunky computers that monitor the charging of the blast furnace and the flow of molten steel and slag, are archival photographs from the early days. One of them shows a slimmer but still stocky Mr. Nazarbaev in 1962 as part of `Brigade No. 2, Blast Furnace 2.'

Asked how Ispat Karmet had managed to save jobs when most companies which privatise look to slash them, Mr. Chaudhary said he had used the existing workforce more efficiently and had expanded the business.

"We have added iron ore mines to the coal mines we already had and are now fully vertically integrated. But now, we are looking at a VRS for some of the older workers." By law, there is no retirement age and it is not uncommon for elderly workers to receive both a salary from Karmet and pension from the state.

Wages issue

Wages may have doubled since the Ispat group came in but at a monthly average of $250 (Rs. 11,000), they are low by international standards. Mr. Chaudhary acknowledges this and the fact that wage demands are his main source of tension. He says Ispat Karmet cannot afford to pay more and be competitive internationally, given the distance of Kazakhstan from most steel markets barring China, which buys more than 30 per cent of the company's output.

"We are the best pay masters here outside of the oil industry." Other company officials say the Kazakh Government will not be too pleased to see wages in one company rise far above the national norm.

Whatever the truth about the wage debate, there is no doubting the fact that the Mittal role in Ispat-Karmet has generated enormous goodwill across Kazakhstan for India and things Indian — this despite the fact that the parent company is actually registered in the Dutch Antilles. L&T and Punj Lloyd are cashing in on this but most Indian companies have been slow to get off the mark here, especially in the energy sector.